Small business owners need financial, operational and emotional support to succeed. Starting a business and navigating it in an often-harsh marketplace can be challenging. One of the most crucial support sources for entrepreneurs and small business owners is their social network. We’ll explore the role of friends and family in helping a new business succeed.
Why is family and friend support important for business owners?
Friends and family provide a support system to help business owners manage stress, maintain perspective and improve work-life balance even amid the chaos and crushing responsibility of founding and running a business.
Aside from moral support, business owners often benefit from monetary contributions and investments from family and friends. Financial support can help entrepreneurs lay a firm business foundation or provide a lifeline amid financial hardship.
What funding types can family and friends offer?
Family members and friends often provide business owners informal loans and financial gifts. In other cases, funding from family and friends can be more formal. Here are some funding options that family members and friends can use to support their loved ones.
- Business loans. Banks aren’t the only small business loan source. Family and friends also commonly provide business loans to cover startup costs during the early stages of a business launch. Community members might fulfill a loan and charge low or no interest. They might also give business owners more flexible repayment options than banks. Though a business loan can be distributed informally, both parties should document the loan contract terms. A written agreement can legally protect both parties
- Donations. Donations are one of the simplest ways to give or receive business funding. With donations, individuals can monetarily support a business without needing repayment or business control.
- Equity funding. In an equity funding agreement, a business owner gives investors a percentage of their profits, some control of the business, or both. These benefits are in exchange for the investor’s monetary contribution. Among family and friends, equity funding gives individuals the opportunity to have some stake in businesses to which they have a personal connection. However, business owners should be careful when deciding on equity holders. Owning equity in a business can give a person the right to make decisions about it.
Consider offering equity stakes to angel investors once your business is established and growing. For this reason, you might not want to divide all of your business’s equity among family and friends when you’re first starting your company.
How friends and family are lifelines for entrepreneurs
Financial assistance, emotional support and companionship weave a web of connections that helps small businesses find stability. Bank of America’s Small Business Owner Report, based on a survey conducted between March and May 2022, includes responses from 1,037 small business owners across the country. Below are the report’s key findings about family and friend support.
- Financial support. The survey found that 70% of business owners have plans to acquire funding for their business. Of that percentage, 12% said they plan to rely on family and friends for funding. A study from Clutch found that 22% of founders received funding from friends or family in the first three months of launching their businesses.
- Partnerships in and out of business. The report found that 46% of business owners are in business with a spouse or partner. Of those small business owners, 96% said they enjoy working together. Working with a partner or spouse allows entrepreneurs to test new business ideas by reviewing them with someone who understands the ins and outs of the business. Partners and spouses also bring additional skill sets to help tackle challenges and push the business forward.<
- Moral support. For small business owners, emotional support can be just as crucial as financial support. Money can’t always alleviate the stresses of building and growing a business. According to the Bank of America report, family and friend support significantly contributes to business owners’ motivation and excitement for the future. Volunteering and providing business referrals are other nonfinancial ways friends and family can support a small business owner.
- Assistance during the pandemic. Other research from Bank of America found that 55% of small business owners have faced challenges in stabilizing their businesses during the COVID-19 pandemic. The report also found that, due to this challenge, 43% of business owners have reached out to family and friends for financial support. Among minority communities, this percentage has been even higher. For example, about 68% of Asian American and Pacific Islander business owners have turned to family and friends for pandemic-related financial support.
Many businesses entrust family and friends with key organizational roles to ensure continuity if a founder dies or leaves the business.
Be the support a small business needs
The ties that bind us as family, friends and communities enrich our lives and strengthen our social bonds. They also throw a lifeline to small businesses working in the era of big-box stores and online marketing. Community ties and support among local businesses can help entrepreneurship thrive.
Whether you own a business or are planning to launch one, don’t be afraid to share your vision with family and friends. The people closest to you might be more than willing to support you and your professional venture. They also might take a few days out of the month to help you pack orders, update inventory notes or organize products.
Small businesses also need their communities’ input and support to thrive. Here are some ways to support local businesses you care about:
- Consider skipping the big Black Friday rushes during the holiday season and supporting your local businesses on Small Business Saturday instead.
- Remember local businesses for everyday shopping in your community.
- Like small businesses on your social media feeds, follow their work, share their posts, and comment when you see something you appreciate.
Be a good community steward of local businesses, and you’ll continue to access their diverse and unique products and services.
Adam Uzialko contributed to the reporting and writing in this article.